Nokia to Shut Down Romania Factory, Consider the Future of Fabs in Europe and Northern America

Nokia Corp., the world’s No. 1 maker of handsets that is losing market share these days, on Thursday said it would shut down a manufacturing facility in Romania and re-consider the fate of its factories in Finland, Hungary and Mexico. While the firm believes the shift of manufacturing to Asia will help it to cut costs, it is clear will no longer be able to build the same volume of handsets as it used to in the future.

Nokia said it would adjust its manufacturing capacity and renew its manufacturing operations to “better serve its global network of customers, partners and suppliers”. In particular, the company wants to focus its feature phone manufacturing on those locations with optimal proximity to suppliers and key markets. As a result, Nokia plans to close its manufacturing facility in Cluj, Romania by the end of 2011, as Nokia's high-volume Asian factories provide greater scale and proximity benefits, according to the company.

Moreover, Nokia will “review” the long-term role of its manufacturing operations in Salo, Finland; Komarom, Hungary; and Reynosa, Mexico. These factories are expected to continue to play a key role in serving European and North American smartphone customers, but the plan is to gradually shift their focus to “customer and market-specific software and sales package customization”, which essentially means that the factories will cease to build mobile phones as they do now.

Nokia headquarters in Espoo, Finland

Nokia’s success on the market of handsets is not a pure luck. The company has been building its manufacturing chain for many years in order to have enough production capacities to serve the market needs. Unfortunately, Nokia itself was not flexible enough in many terms and now partly those production capacities may be idle or too expensive. Moreover, thanks to Stephen Elop’s pre-announcement of switch from Symbian to Windows Phone platform, the company’s smartphone market share and average selling prices are collapsing these days and Nokia has to cut down its costs to stay profitable. Unfortunately, after Nokia loses its own capacities, the firm may not be able to manufacture the volume of mobile phones needed to serve 40+ percent of the market.

“We are seeing solid progress against our strategy, and with these planned changes we will emerge as a more dynamic, nimble and efficient challenger. We must take painful, yet necessary, steps to align our workforce and operations with our path forward,” said Stephen Elop, president and chief executive officer of Nokia.

But while Nokia potentially undermines its future ability to manufacture devices in Europe and Northern America, it intends to keep all of its research and development (R&D) facilities in developed countries (albeit, with workforce reductions). In addition to its headquarters, Nokia has four major R&D sites in Finland and two major R&D sites in Germany, as well as Nokia Research Centers and other supporting R&D sites in Europe. Nokia will also retains a strong local presence in many sales offices throughout this region, as well as its operations in Salo and Komarom.